_ Sh accutinf a 545 je 5 Chapter 15 k 1r 7 i " Accounting for Corporations - Gearning Objectives 4, State the components of shareholders’ equity. | 2 3, Account for the initial issuances of shares of stocks : 3. Account for treasury shares. ‘ e e Introduction t ‘As mentioned earlier, the accounting for assets and liabilities | remains the same regardless of the form of a business organization (ie., sole proprietorship, parinership, corporation or cooperative) _what changes is the accounting for equity. Corporation The Philippine Corporation Code defines a corporation as “an artificial being created by operation of law, having the right of succession and. the powers, attributes and properties expressly authorized by law or incident to its existence.” y A corporation is a separate legal entity distinguished from its owners (i.e., shareholders or members). It is formed through an operation of law and not by mere agreement between the owners. It has the right of succession, meaning it continues to exist notwithstanding the withdrawal, death, insolvency or incapacity of the individual owners, and is dissolved only again through an operation of law. The operations of a corporation are’subject to a higher degree of government regulation compared to other forms of businesses. | Organization of a corporation Some of the provisions of the organization of a corporation are highlighted below: * A corporation is formed by “any person, partnership, association or corporation, singly or jointly with others but not more than 15 in number.” Corporation Code regarding the546 Shareholders’ equity Shareholders’ equity is the residual interest in the assets of a corporation after deductin, of the “Owner's equity” in a sole Proprietorship and the a; of partners’ capital balances in a partnership. following: Chapter 15, The entity’s articles of incorporation must be authorized by the Securities and Exchange Commission (SEC). ; The articles of incorporation states, among other things, the corporation’s authorized capital stock, which is the maximum number of shares that the corporation can issue. Any excess share issued is deemed illegal. In order to issue additional shares, the corporation must first amend its articles of incorporation to increase its authorized capitalization. To amend the articles of incorporation, a majority vote of the board plus a vote by shareholders representing at least two-thirds (2/3) of the outstanding share capital are needed. The amendment takes effect after approval by the SEC or from the date of filing with the SEC if not acted upon within 6 months from the date of filing. A corporation has perpetual existence unless a fixed term is stated in the articles of incorporation. 8 all its liabilities. This is the equivalent sBregate The components of the shareholders’ equity include the Share capital (Capital stock) Preference share capital (Preferred stock) Ordinary share capital (Common stock) : Subscribed share capital (Subscribed capital stock) Subscription receivable (as a deduction) Share dividends distributable (Stock dividends payable) Capital liquidated (as q deduction) Share premium (Additional paid-in capital) Other components of equity* Treasury shares ( Treasury stock) orl . do wis corP eeaos Acc © mer Th547 - Accounting for Corporations go right1Ow is discussed in higher accounting studies, $0 8 ons of # “Other components of equity” e succeedint we don’t need to worry about this. The rest are discussed in the this book O The following transactions affect the decounting for 2 corporati jon’s equity: . authorization, subscription, and issuance of shares : Acquisition and reissuance of treasury shares c. Retirement of shares 4, Donated capital Distributions to owners (Dividends) Accounting for Share capital Anentity accounts for its share capital usi g one of the following: 1. Memorandum method — dum is made for the authorized capitalization. credited to the share capital account. 2. Journal entry method - The aut recorded by crediting Only a memoran Subsequent issuances of shares are horized’ capitalization is “authorized share capital” and debiting “ynissued share capital.” Subsequent issuances of shares are credited to “unissued share capital.” The difference between the “authorized, share capital” and “unissued share capital” represents the issued share capital. 4© The more commonly used method in practice is the memorandum method. Ilustration: Memorandum method vs. Journal entry method oe capitalization » On January 1, 20x1, ABC Co. received authorization from the ‘ SEC to issue share capital of P1,000,0000 divided into 10,000 shares with par value per share of P100. | The authori \orized share capital is recorded und methods ec Rainn ip ler each of the two Ee.Sy lee eee ge 548 Chapter 15, ee tine 8h Memorandum method Memo entry — The authorized capitalization is P1,000,000 divided into 20,000 shares with par value per share of Pico. Journal entry method Unissued share capital 1M Authorized share capital 114 » Authorized share capital - represents the maximum number of shares fixed in the entity's authorized “articles of -incorporation that can be subscribed and issued shareholders, > Unissued share capital - represents the portion of the authorized share capital not yet issued and is still available for subscription and issuance. to Subscription 2. Of the total authorized share subscribed at par value and 25% Paid at subscription date. Memorandum method Journal entry method ; Gash 2.500% 100 par 25%) 625K _ | Cash 500 x Pi00 por x25%) 2.5K Subscription receivable* 187.5K _ | Subscription receivable 187 5K Subscribed share capital 250K 5Kx Pi = 187,500) or (2,500 x F100 x 75% = 187,500) capital, 2,500 shares were of the total subscription was Subscribed'share capital 250K (25K x P100) * (250,000 ~ 62,500 @ Notice that same entry is made under both methods, > Subscription ~ a contract between the purchaser of shares Ge, investor) and the issuer (ie, corporation) in which the Purchaser promises to buy shares of the issuing company’s stocks at an agreed price. > Subscription receivable - represents the unpaid Portion of the subscription price. Subscription receivable is more commonly Presented as a deductio: m from the related subscribed share capital, i.e., contra equity account. er i a, Roti “ext ning for Corporations 4 549 subscribed share capita authorized share capital that Ms the jection of subscription rece, : ‘Table cates February. 1, 20x1, Ape eee © lsuance 3 sh || Subscription receivable | Gabseribed share capital 200K Share capital «subscription price of 2,000 shares (2,000 i: XP100 par) 200,000 Portion already paid (P200,000 x 25%) 60000) Balance collected 150,000 » Share capital — represents the capital that is already issued. > Share certificate — is a document that evidences ownership of ashare. Portion of the authorized share & Notes: : 7 [Share capital” te credited (under menratem weiiod) end “Unissued share capital” is credited (under journal entry only upon the issuance of shares. oe = Under the ‘Corporation Code, shares lend aeenicee =) are issued to subscribers only upon full pay subscription price. The Corporation Code Pr exchange for promissory corporation must receive shates are issued. f shares in ibits the issuance of Pols or future services. The first the full consideration beforeCash subscription 4 On February 28, 20x1, ABC received cash subscription for 1,000 shares at par value. Memorandum method Journal entry method ‘Cash (1,000 100) 100K Cash (3,000%P100) 100K Share capital 100K | _ Unissued share capital 100K ~ Notice that “Share capital” (‘Unissued sha ve capital’) is directly credited (debited) for cash subscriptions. The share capital of ABC Co. as of Fel bruary 28, 20x1 is shown, below: Memorandum method Share capital Journal entry method 300,000 | Authorized share capital 1,000,000 Subscribed sh. capital. 50,000 | Unissued share capital Subs. receivable (87,500) | Issued share capital 300,000, ‘i Subscribed share capital Subscription receivable Total Share capital Total Share capital 312,500 4s more commonly presented as contra er than as an asset as applied under Classes of Share capital Share capital is basically @. Ordinary share cay b. Preference share classified into two, namely: pital (Common stock); and capital (Preferred stock), Mt. é ning for Corporations, shi shares (common nary 9 Stock) ordi that Bears the ultimate gee! intprfits of SUCCESS. Ordinary shareho|, Mividends NOT Assets upon \t Of the i general management corporation % corporation is successful," 4 €nd to prof y the O''TE an entity has only one essarily is an ordinary she aes Share capital, it ve capital. The Corporates Code Preference shares w thout ordinary Ortlinary shareholders, genealy, ery the same rights with no preference over other shareholdew The following are examples of rights of ordinary shareholders: 1, Right to attend and vote in shareholders’ meetin, 2, Right to purchase additional shares (also known as preemptive right or stock right) 3. Right to share in the corporate profits (also known as tight to dividends) 4. Right to share in the net assets of the corporation upon liquidation. For stock corporations, voting rights a conferred to shareholders in proportion to their ee ine Thus, a shareholder who holds more shares normally i ights. ae the ete right (right of Lage oe lution of their 0% shareholders from involuntary dilution seo me interests.. Without this right Oe eibooribe reduced by the issuance shareholder's knowledge. Some corporations shares, such as “Class A’ cases, one class of ordinary Sm always) will have more vo! SN sone class that has more voHns, have more than one type of ontinary 4 “Cass B” ordinary shares, In uch ty shares (normally ‘Class x rs the other cass ah tines called SPE sh ofvoting” shares. One purpose of issuing “super voting” shares is to give key company insiders (e-g., founders and executives) greater control over the company’s. voting rights. This enables them to control corporate policies and management decisions. Preference shares Preference shares (preferred stocks) are shares that give the holders thereof certain preferences over other shareholders. Such Preferences may include priority claims over (a) dividends and/or (©) net assets of the corporation in the event of liquidation. ta exchange for such preference(s), preference shareholders sacrifice certain inherent rights of ordinary shareholders (e'g., voting rights over Clection of directors and officers). One purpose of issuing Preference share is to broaden investor appeal, thereby increasing the corporation’s opportunity to generate equity finan cing. Share premium Share premium (additional paid-in capital) arises from various sources which include the following: Excess of subscription price over par value or stated value. Bb. Excess of reissuance price over cost of treasury shares issued. ¢. Distribution of “small” stock dividends. Mlustration: 1. ABC Co. started operations on January 1, 20x1. Its authorized capitalization is 1,000,000 divided into 10,000 shares with par value per share of P100. ABC Co. receives cash subscriptions for 5,000 shares at P120 per share. Jan. | Cash (5,000 x P120 subscription price) 1 ee FS ge a ntl cise for Corporations « se Notes “auare capital” and ‘Subscribed share co, —_ oie regardless of the subscription pac BN Glted at par hor ghare premium is credited at the site Subscriptions that are not yet pai that the total subscription price ABC Cos total contributed capita sof january 1, 20) o computed as follows: “ot of Share capital Subscribed share capital Subscription receivable Share premium (100k + 120k) Total contributed capital par value and No-par value shares in the articles of » A par value share is ome with a peso vale fxed in the articles of : incorporation. The purpose of which ist fx the amoun S » issuance price. A par value share cannot be a a a oT cate issu value. The par value appears on each share cert 1 fixed in the ) ‘A no-par value share is one without a peso valu value share has a : articles of incorporation. However, @ ee he aniles of stated value (issued value) which is aso ine a and incorporation but not on the share: arte no-par value shares are distinguis! ‘of a value per share on the the presence or absence Inder the Share certificate issued. U e issued for a ould not be sued for 3 Corporation Code, no-par value shares 850 re, The excess of 6 per sna ad to. share consideration less than five (PS) P=° credited ed value 45 600,000 subscription price over the st 2081 ‘Share capital (5,000 x P190 par value) 500,000, Premium. a Share premium [5,000 x (P120 - P100)} 100,000, alue of P1O0 per shar Example: snares with stated 1d as follows: 2. On January 31, 20x1, ABC receives subscription for 2,000 An entity issues 5,000 SPAT eis recor eT ooo shares at P160 per share. for P120 per share. The is Jan. | Subscription receivable (2,000 x P160) Date ‘Cash (6,000 x P120) = Subscribed share capital (2,000 x P100) 320,000 200,000 120,000 Share premium [2,000 x (P160—P100)) P1000 share capital 60008 a oh554 Chapter 15, Under the Corporation Code, ordinary shares may be issued as either par or no-par value shares. However, preference shares should only be issued as par value shares. Legal capital Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first. Legal capital is"based on the concept of trust fund doctrine which states that the share capital of a corporation is a trust fund held for the protection of its creditors. Legal capital is computed as follows: a. For par value shares, legal capital is the aggregate par value of shares issued and subscribed. For no-par value shares, legal capital is the total consideration received or receivable from shares issued or subscribed. Total consideration refers to the subscription price inclusive of any amount in excess of stated value. b. Illustration: Legal capital The equity section of ABC Co,’s statement of financial position shows the following information: 6% Preference share capital, P100 par value 200,000 Share premium — preference share capital 50,000 Ordinary share capital 800,000 Share premium — ordinary share capital 300,000 Subscribed share capital — ordinary 100,000 Subscription receivable — ordinary share capital (50,000) Retained earnings 400,000 ~ Requirements: Compute for the legal capital assuming: a. The ordinary shares are par value shares; and b. The ordinary shares are no-par value shares, lutions: ing for Corporations 2 TRI? ENTLY Gu Preference share capital, P100 par valug a —_No-par "sinary share capital 200,000 "200,000 ore inant! ora : 800,000 800,000 re premium — ordinary share capital subscribed share capital'- ordina 100,000 ion Legal eapital 1,100,000 7,400,000 + Notes: zr In case of no-par value shares, egal capital includes the share premium of ordinary shares. + Preference shares can only be issued as par value shares. Thus, the share premium of the preference shares is not included. Share issuance costs Issuing shares entails expenditures, such as regulatory fees, legal, accounting, and other professional fees, commissions and underwriter’s fees, printing costs of certificates, and documentary stamp tax and other transaction taxes. These expenditures, cle ‘share issuance costs’, are deducted from any resulting shire premium from the issuance. If share premium is insuficient, excess is charged to retained earnings. Mlustration: On January 1, 20x1, ABC Co. issued 1,000 P100 for P120 per share. Share issuance ‘The entries are as follows: shares with par value of costs amounted to P5,000. 720,000 Ten 2081 ‘Cash (1,000 x P120) Share capital (1 000 P10) 00 x (120 - P1001 Share premium [ Share premium Cashoh gine Sa i Fray Treasury shares Treasury shares (treasury stocks) are an entit were previously issued but are subsequent! retired. Under the Corporation Code, Previously issued shares only retained earnings. ty’s own shares that ly reacquired but not an entity may reacquire its if it has sufficient unrestricted Accounting for treasury shares Treasury shares are accounted for using the cost this method, the reacquisition and treasury shares are recorded at cost. Treasury shares are presented as deduction in the shareholders’ equity (ie., contra equity account). ‘method. Under Subsequent reissuance of Illustration: On January 1, 20xl, the statement of financial position of ABC Co. shows the following information: Share capital (P100 par value) bing ft Corns earnings that is not availab) restriction is subsequently re \[(ase 1: Reissuance at cost, on September 1, 20x1, ABC reissues the 1,000 treasury shares at 790. pe te ae | Portion of retained © for distribution: unless the versed, [Spe] Cash (1,000 x F90) 90,000 | 200 ‘Treasury shares (1,000 x50) 90.000 [Sgki | Retained earnings - appropriated 90,000 |= Retained earnings - unrestricted 90,000. is the related When treasury shares are reissued, appropriated retained eamings are reverted back to unrestricted retained earnings. than cost 800,000 _[Case 2 — Reissuance at more tha pit Share premium 160,000, |On September 1, 20x1, ABC reissues the 1,000 treasury Retained earnings Sagoo (rd Total shareholders’ equity 1.500.000 70200 5907] Cash (900% F Ia) its 90,000 * On July 1, 20x1, ABC reacquires 1,000 shares at P90. ao Treasury shares (40005750) 50,000. Share premium treasury "90,000 ‘nly’ Treasury shares (100090) 90,000 “uj | Retained earnings ~ appropri S008 ore Cash 90,000 om Retained earnings ~ unre é iy) Retained earnings > unroauicied 90,000 are reissued at more than Retained earnings - appropriated 90,000 When. treasury shares > Retained earnings represent the cumulative profits (net of losses, distribution to owners, and other adjustments) that are Mained in the business and not yet distributed to the Shareholders, Total fetained earnings may consist of a. Unrestricted ~ the Portion of retained earnings that is available for future distribution to the shareholders. vance price over the cost Ss aes.” This forms part of Teacquisition cost, the excess oe sha 's credited to “Share peer the entity’s total share premium slow cost Case 3 — Reissuance at below Or the 1,000 treasury shares at On September 1, 20x1, ABC ™ 0.1 el ig 1 sing for Coeration ES 558 Chapter 15 Set, ] Cash (1,000 P60) =60,000 20:1 | (a) Share premium — treasury shares * (b) Retained earnings 30,000 ‘Treasury shares (1,000 x P90) 90,000 ‘Set.1. | Retained earnings — appropriated ‘90,000 ae Retained earnings ~ iunrestricted 90,000 When treasury shares are subsequently reissued at below the reacquisition cost, the excess of the cost over Le reissuianes Price is debited to the following in the order of priority. a Any balance in “share premium ~ treasury shares” avising from the same class of share capital. b. If the balance in “share premium — treasury shares” is insufficient or if it has no outstanding balance, any excess is debited to retained earnings. In the illustration above, since ABC Co. does not have “Share premium — treasury shares,” the P30,000 excess (ie, 90,000 teacquisition cost - 60,000 reissuance price) is debited to “Retained earnings.” Retirement of shares Shares are considered ‘retired if they have been reacquired and cancelled in accordance with Securities and Exchange Commission (SEC) regulations. Unlike for treasury shares which can be subsequently reissued, retired shares cannot be reissued anymore. When shares are retired; the total par value and the related share premium of the retired shares are removed from the books of accounts. Any difference between the total amount removed and the retirement cost is accounted for as follows: : 1. If the par value and related share premium of the retired shares exceed the retirement cost, the difference is credited t0 “Share premium — retirement,” If the par value and related share premium of the retired shares are less than the retirement cost, the difference 16 debited to the following in the order of priority: es A PRU teh Share premium — treasury shares Retained earniiigs q * “stration: Retirement of shares on January 1, 20x1, the statement of finan % cial position of ows the following information: Pe of ABC Co, spare capital (P100 par value) ae Share premium Aansto | Share premium — treasury shares 00 Retained earnings otal shareholders’ equity 35,000 Case 1 - Retirement cost less than Original issuance price ABC reacquires 1,000 shares at P80 per share on July 1, 20x1 and retires them on September 1, 20x1. jon 000 Me, | Treasury shares (1,000 x P80) eal bss Cash Sept. 1 - Retirement sono [**] Share capital (1,000 x F100) ‘erson] 20,000 ‘ata | SRare premium — original issuance (1.00 inom ‘Treasury shares (1,000x P80) 40,000 Share premium ~ retirement Cad wie forthe appropri To simplify the illustration, joumel en And the reversal thereof are ignored “The share premium from ot retained earings follows: a 160,000 Total share premium before retiteme ment 8,000 Divide by: Total issued Tia par value) 720 (800,000 Share capital + P1! ginal issuance _—_ hare premium per share from ©"560 Chapter 15, tera Case 2 ~ Retirement cost greater than Original issuance price * ABC reacquires 1,000 shares at P140 on July 1, 20x1 and iminediately retires them fiuiv 2] Share capital (000 x ri00) 100,000 221) Share premium ~original issuance (1,000 x20) | 20,000 (a) Share premium — treasury shares 5,000 (©) Retained earrings (balancing figure) 15,000 Cash (1,000 x P140) 140,000 When shares are reacquired and immediately retired, there is no need to set up a treasury share account. The par value and related share premium of the retired shares are i immediately debited, with a corresponding credit to “Cash”. GD Notice that in the accounting for treasury shares and retirement of shares, retained earnings may be decreased but never increased. Donated capital Donated capital arises from gifts received by the corporation from nonreciprocal transactions. Donated capital may arise from the follo 1. Donations from shareholders — these are credited to share premium. 2. Donations from the government — these are recognized as government grants. (Gorxiument grants are discussed in Intermediate Accounting 1) 3. Donations from other sources — these are recognized as income when (a) the conditions attached to the donation are fulfilled or are reasonably expected to be fulfilled, (b) the donation becomes receivable, and (c) the criteria for asset recognition are met. Donations from shareholders may be in the form of: a, Cash — recognized at the amount of cash received or receivable, ecounting for Corporations Entity’s own shares — initially re zt “Donated capital is recognized ee eee are subsequently reissued. This is beans nena ta enerated from the donated shares until they ane subsequently reissued. If the donated shares sre mer y : to be resold, the entity should effect a formal reduction ofits authorized capital ky retiring the shares received. Illustration 1: Cash and Noncash donations from shareholders ‘ABC Co. received cash of P100,000 and land with fair value of 500,000 and historical cost of P300,000 from a shareholder. No conditions are attached to the donation, Date] Cash 700,000 Land 500,000 Share premium - donated capital 600,000, Uustration 2: Donated shares received from shareholders ABC Co. received 1,000 shares with par value a ri and fai value of P120 per share from a shareholder as donatio ou 0 entry as The receipt of the shares is recorded through mem! follows: Fino fons a shavenolder as “eseived 000 Shaves with par value of P00 from a sha donation." ed shares at P130 jssues the 1,000 donat Subsequently, ABC Co. reissues per share.562 Chapter 15, Chapter 15: Summa * The authorized capitalization is accounted for using (ay memorandum method or (b) journal entry method. The More ‘commonly used method is the memorandum method, + The excess of issuance price or subscription price over the aggregate par value (stated value) of shares issued op subscribed is credited to the share premium account. + For par value shares, legal capital is the aggregate par value of shares issued and subscribed. For no-par value shares, legal capital is the total consideration received (receivable) from shares issued (subscribed). + Share issuance costs are deducted from share premium, © Treasury shares are an entity’s own shares that were previously issued but are subsequently reacquired but not retired. Treasury shares are accounted for at cost. counting for Corporations «_ Pro forma entries for retirement of sha % es: Share capital (at par or stated value) Share premium — original issuance Treasury shares (at cost) Cash % Share premium - retirement (a) Retirement at below origina issuance rice Dr. me Cr x x a ST pr eae a eee © Retirement at above original issuance price Share capital (at par or stated value) Share premium - original issuance (1) Share premium - TS (2) Retained earnings Treasury shares (at cost) / Cash 1x REE ‘+ Pro forma entries for treasury share transactions: (a) Acquisition of treasury shares De cr Treasury shares (at cost) Xx Cash xx (©) Reissuance of treasury shares at above cost Cash xx Treasury shares (at cost) xx Share premium - TS x (© Reissuance of treasury shares below cost Cash * xx (D) Share premium ~ TS Xx (2) Retained earnings xx Treasury shares (at cost) wo [eter ON ee cecal is” aay 8 RON cela? “In addition to the above entries, an appropriation of retained earnings 2n4 Feversal thereof should also be made in’ accordance with the Corporation Code, Cash and non-cash assets received as dénations from shareholders are credited to'share premium. © Donated shares are initially recorded through memo entry and are recognized only upon their reissuance. PROBLEMS PROBLEM 1: TRUE OR FALSE ‘ ; 1. Ifa corporation receives share subscriptions, ssheren paves for the subscription price is deferred, the corporsls the transaction through the ae copia er st 2 a ital” and “ I accounts The “Share copie echangeniy when seaming, fr corporation's share transaction 3. The “Share capital” and “Subse he re are credited at par value oF 8 subscription price share capital” accounts value regardless of thei 564 Chapter 15 Sep chapter 15 Use the following information for the next five questions: You and I are the accountants of A Corporation. Our company’s authorized capitalization is P100M divided into 100M shares with par value per share of P1. 4. If our company issues 10,000 shares for ®5 each, we will recognize a share premium of ®50,000. 5. Our company can issue shares at a subscription price that is below P 1. 6. ‘Our company can issue more than 100M shares without amending its articles of incorporation. : 7. four company receives share subscription for 20,000 shares at 15 per share, we will most likely recognize the related share premium on subscription date rather than on the collection date. 8. We will-issue the related share certificates on the subscription in #7 above only after our company receives the full payment thereon. 9 In the accounting for treasury shares and retirement of shares, retained earnings may sometimes be increased. 10. When retiring shares at a cost above the shares’ original issuance price, the excess of the retirement cost over the original issuance price is debited first to any balance in the Share premium — Treasury account. If the balance of that account is insufficient or if there is no balance in that account, any excess is debited to the Retained earnings account. PROBLEM 2: FOR CLASSROOM DISCUSSION Memorandum method vs. Journal entry method 1. Entity A was incorporated at the start of the current period. The following were Entity A’s share capital transactions during the year: a. The SEC approved Entity A’s authorized capitalization of P3,000,000 divided into 100,000 shares with par value of P30 per share. s ss pb, Twenty-five thousand (25,000) share . par vale and 25% ofthe utc ena a ‘on subscription date. ss c. Received full payment for 10,000 subscribed shares and issued the related share certificates, d, Received cash subscription for 15,000 additional shares at a subscription price of P40 per share, e. Received subscription for 10,000 additional subscription price of P50 per share. f. Collected the full payment on the subscription ine’ above and issued the related share certificates. shares at a Requirements: a. Provide the journal entries under (1) Memoradun method! and (2) Journal entry method. ; dane end ot b. Prepare the shareholders’ equity of Entity A as of the end the period. Share issuance costs sun eee 2. Entity A issued 2,000 shares with pa alae OP share, Share isstiance costs amounted 19 HORE Tow. NIN the net share premium arising. from Provide the journal entry: Accounting for Treasury shares Entity A’s state f financial postion as of the Bei of the s of the beginning ‘ancial position 25 ment of fi ation: period shows the following infor™ 1,000,000 - 460,000 Share capital (P20 par value) 540,000 Share premium 2,000,000 Retained earnings Total shareholders’ equitY ch. Provide the es for 930 each of retaines ines 50 ed appropriation 3. Entity A rence ng the related 2PP journal entries i earnings. aunting for CorporationsBee Chapters 366 Chapter as Use the information above for the two independent cases below: Case 1: Reissuance of treasury shares above cost 4. Entity A reissues 1,000 treasury shares for P45 each. Provide the journal entries, including the related appropriation of retained earnings. reversal of Case 2: Reissuance of treasury shares below cost 5. Entity A reissues 1,000 shares for P20 each, Provide the journal entries, including the related reversal of appropriation of retained earnings. Accounting for Retirement of shares Use the following information for the next two independent cases: Entity A’s statement of financial position as of the beginning of the period shows the following information: r Share capital (P20 par value) 11,000,000 Share premium 250,000 Retained earnings 750,000 Total shareholders’ equity » 2.000.000 Case 1: Retirement cost less than Original issuance price 6. Entity A reacquires 5,000 shares at par value and immediately retires them, Provide the journal entry. Case 2: Retirement cost greater than Original issuance price 7. Entity A reacquires 5,000 shares at #50 each and immediately retires them. Provide the journal entry. Donations from shareholders % 8. Entity A receives the following donations from a shareholder on December 25, 20x1: a. . Cash of 500,000. Equipment with historical cost of 900,000 and fair value of 700,000. | provide the journal entries, PR 1 Requirements: b. nting for Conporations 10,000 shares with pat value of Piop 7 ‘The shares were reissued on January §, mone value of 20, : , each, OBLEM 3: JOURNAL ENTRIES Entity B was incorporated at the start of the current period. ‘The following were Entity B’s share capital transactions f during the year: a. The SEC approved Entity B's authorized capitalization of P10,000,0000 divided into 1,000,000 shares with par value ‘of P10 per share. b. Fifty percent (50%) of the authorized capitalization was subscribed at par value and seventy-five percent (75%) of the subscription was paid on subscription date. c. Received full payment for 250,000 subscribed shares and issued the related share certificates. d._ Received cash subscription for 50,000 additional shares for share. e Reed subscription for 100,000 additional shares for #20 Ss, i ‘'e above iy Pee the full payment on the subscription in’e’ abo and issued the related share certificates. randum method and Provide the journal entries under (1) Memorandum me rovide the jo nal entry method 2 the period ty B as of the end of Jue of P100 for P140 to P6 per share. How i 3 Entity A issued mm the share per share. Share jgguance © much is the net issuance? Provide ted ts amounted remium arising fo; iii cima | FEES 568. - Chapter ig gn \ lal nS CT eit oar Use the following information for the next three independent questions: Entity B’s statement of financial position as of the beginning of the period shows the following information: Aa Entity B receives the following dona on February 14, 20x1: ions from a shareholder of + Cash of 200,000. & Share capital (P10 par value) 1,000,000 + Building with historical cost of 3,000,000 and fair value of Share premium 200,000 900,000. a Retained earnings 180,000 * 20,000 shares with par value of P10 and fair value of P22. bi Total shareholders’ equity 1.380.000 ‘The shares were reissued on July 5, 20x2 for P32 each, 3. Entity A reacquires: 1,000 shares for ®30 each. Provide the provide the journal entries. journal entries, including the related appropriation of retained i a a ta al t earnings. PROBLEM 4: MULTIPLE CHOICE 4. Entity A reissues 500 treasury shares for ®40 each. Provide the 1. Entity A received a subscription for 2,000 shares at P18 per journal entries, including the related reversal of appropriation share on March 31, 20x1. Entity A’s shares have a par value ®5 oe ene per share. Entity A collected the subscription receivable on | May 15, 20x1. Which of the following statements is correct? Entity B reissues 500 shares for ®20 each. Provide the journal entries, including the related reversal of appropriation of retained earnings. ‘a. Entity A should credit share premium for P13,000 on March 31, 20x1. b. Entity A should credit share premium for 26,000 on March 31, 20x1. oy : ye 913,000 on May Use the following information for the next two independent questions: i Entity A should credit share premium Entity B's statement of financial position as of the beginning of the i 15, 20x1. for 26,000 on May period shows the following information: a. Entity A should eredit share premium for #2°" A : 15, 20x1. Share capital (P10 par value) 1,000,000 | tal transactions during, Share premium 200,000) 2, -Engity A has the following share PI Retained earnings 180.000. dre yee value of P10 per share for Total shareholders’ equity 1.380.000 . Tested 10,000 shares with i val total consideration oF FISOO". |, an q00 shares at 6 Entity B reacquires 1,000 shares at 11 per share and © Received share SubscriPHO™ share, Only half of immediately retires them. Provide the journal entry: subscription price of F oer the end of the year: ab Subscriptions were calecea it the share Entity B reacquires 1,000 shares at P15, per share on January 1, rom 20x1 and retires them on March 1, 20x1. Provide the journal 2 How much is entries (you may ignore entries for the automatic transactions above? appropriation of retained eamings) j } fen i) fr ium arising the total share prem570 anting for Corporations Shapteriss | A a. 60,000 «. 300,000 y_wwert Sel/ING Fhe stock vient ot 94 per sha ; b. 320,000 4. 180,000 To secord the reacquisition,Yintyy Astonia ~ |g. debit Treasury shares acount fr 9500, of 3. Entity A was incorporated on January 1, 20x1 with an | credit Treasury shares account for 830,009 authorized capitalization is P1,000,000 divided into 100,009 shares with par value of P10 per share. The following were the share-related transactions of Entity A during the year: b. i P31606 ¢. debit Share premium account for p10 000" 4 credit Treasury shares account for 940,000 h | Cash subscriptions of 30,000 shares at P12 per share. 6 Two years ago, Entity A reacquired 2,000 of its own shares ‘ + Subscriptions of 40,000 shares at P18 per share. Seventy- with par value of ®100 per share for 9240,000. Today, Entity A five percent of the subscription price was collected during reissues half of the treasury shares at 160 per share. The the year. | joumal entry (o record the reissuance includes which of the following? How much is the Entity A’s total shareholders’ equity after a. Credit to Retained earnings - unrestricted account for recording the transactions above? 240,000 a. 900,000 . 540,000 b. Debit to Treasury shares account for P120,000 b. 680,000 4. 360,000 cc. Credit to Share premium ~ treasury shares for ®80,000 i 4. Credit to Share premium - treasury shares for ®40,000 4, Entity A’s total shareholders’ equity was 900,000 befare S recording the following share transactions: | 7. Entity A reacquires 10,000 of its own shares for P50. a «Received cash subscriptions for 10,000 shares with par shares have par value of P10 and were originally ned a 7 value of ®1 at P14 per share. Share issuance ‘costs per share. Subsequently, Enity A reasus the 10% ne a amounted to ®2,000. 4 P48 per share. The joufnal entry 10 recor * Received subscriptions for 20,000 shares at P20 per share. / jnvolves which of the following? Twenty-five percent down payment was collected on a. Debit to Retained earnings for P20,000 subscription date. b. Credit to Cash for #480000 - * Collected the remaining unpaid subscription price of c.. Debit to Share premium for P50 oa | 15,000 subscribed shares and issued the ‘related share Debit to Treasury shares for P5004 certificates, Share issuance costs amounted to #3,000. soo ot oem shares for oe | 8. Entity A reacquires 10¢ Nove originally iste How much is the balance of Entity A’s total shareholders’ vanes have par value ore iy "A. reissues walt of ine equity after recording the transactions above? (Hint: Preparing per share, Subseauenll” AT and then retires ee journal entries makes this problem easier to solve.) Teacquired shares ot 58 PO ye reteset a ne a. 1,490,000 ¢. 1,360,000 half, The journal ent) 1 1 on: Provide ee b. 1,510,000 4. 1,610,000 includes which of the fo! : Troan and heer 175,000 5. On February 26, 20x1, Entity A acquires 10,000 of its own! n Debit to Retained @ shares for ®3 per share. The shares have a par value of P1 anda Chapter 15, b. Credit to Share premiunt - retirement for 40,000 ¢. Debit to Share premium for ®50,000 d. Debit to Retained earnings for 135,000 9. Entity A reacquires 1,000 of its own shares for #25 and immediately retires them. The shares have par value of 910 and were originally issued at ®30 per share. The journal entry to record the retirement of the shares includes which of the following? a. Debit to Retained earnings for ®5,000 b. Credit to Treasury shares for 30,000 Credit to Share capital for 10,000 d. Credit to Share premium - retirement for ®5,000 10. Entity A receives 20,000 shares with par value of P100 and fair value of F210 on November 2, 20x1. The shares have fair value of P20 per share on December 31, 20x1. How much additional capital is recognized in Entity A’s December 31, 20x1 balance sheet as having resulted from the receipt of the donated shares? a. 2,000,000 <. 4,400,000 b. 4,200,000 do PROBLEM 5: CLASSROOM ACTIVITY Xou are the accountant of PLIT Company. You have received the following supporting documents for recording. = 2 : fi] 3 3 3 e_ Suoqioociog 1Co. | —— a | Rater cers er eran ae ed TEENS GRO oS 808277 a Ne. 2006 ——— ipous_JAN- 2.2082 ae | | necanea vom__-ABC.C0._. ; \Pase AA RS ea == —— x STD SORT STERN, SO RONORED SEVERE ae a | 678. eo oy aheres of stacks ie a pee ee —| x” Di Cost Cicreck = ee 574 Chapter 15 PLTT Co. issued ten of the share certificate shown above to ARC © ABC wo. Account Name Joxzo-c104-49 ABC Co. ( nam ss, 120080076 Date PHILIPPINE LONG TALONG TELEPHONE CO. Question: What should you do?